Goldman Studies Bank Purchase,
Latest Blow to Glass-Steagall Act

NEW YORK -- Is Goldman, Sachs & Co., Wall Street's last major private partnership, on the prowl for a commercial bank?

That's the implication of a draft speech that Goldman vice chairman Henry Paulson Jr. was set to give at the securities firm's annual investment bankers' conference this week.

In an early draft of the speech reported Monday in Investment Dealers' Digest, Mr. Paulson planned to say Goldman is studying whether to buy a commercial bank. A Goldman spokesman declined to comment on the speculation.

But Monday, one Goldman official threw cold water on the idea. "The acquisition of a commercial bank is not on the agenda," said the official, who didn't want to be identified. "We would be remiss not to consider our broad options given the changing regulatory and legal environment."

People close to Goldman say the firm formed a group to look at the acquisition of a commercial bank two years ago, after it became clear that the Glass-Steagall Act, the Depression-era law separating the banking and securities businesses, was poised to fall. It is this group to which Mr. Paulson referred in the draft of his speech.

Some analysts say buying a commercial bank could be a logical response to the many forays by banks into the securities business. What Goldman is saying is "if you want to get into underwriting, we'll do loans," said Tom Facciola of Salomon Brothers Inc.

Others caution that Goldman would be hard-pressed to buy a commercial bank because, as a private partnership, it can't finance acquisitions with stock. Indeed, the lack of such a currency has limited Goldman in making acquisitions in money management.

What's more, despite the general loosening of Glass-Steagall, there are still limits on mergers between commercial banks and investment banks. Although the Federal Reserve recently proposed raising the current ceiling on the amount of corporate debt and stock underwriting that banks can do, the new cap of 25% of revenue of the banks' securities affiliates still would effectively bar a merger between two industry giants.

But Mr. Facciola said Goldman could acquire a commercial bank cheaply if it wanted. "There are plenty of commercial banks out there that have almost no assets. It's only the licenses that are in place," he added.

Separately, Mr. Paulson is expected to tell bankers that the firm's investment-banking division generated a record $2.4 billion in revenue this year. The revenue growth is likely to spur Goldman to hire about 1,000 more employees by the end of next year, according to the draft speech. Goldman currently has about 9,000 employees. Goldman also hopes to more than double the size of its asset-management business, which now has about $95 billion under management.